Who does this affect?

Employers of academics and researchers.

What do you need to do?

Include express terms in individual contracts of employment assigning inventions to the employer.

Author
Suzy Groom  
Senior Associate

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Kim O'Connell  
Partner
T +61 2 9296 2188

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Sydney
Kim O'Connell  

Melbourne
Robert Cooper  
Wayne McMaster  

Brisbane
John Swinson  

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On Thursday, 17 April 2008, Justice French handed down a long-awaited 554 page judgment in University of Western Australia v Gray (No 20) [2008] FCA 498.

The decision has important implications for employers, and in particular universities, who seek to rely on implied terms in contracts of employment to secure ownership of inventions made by employees.

Similarly, the decision serves as a warning to universities who seek to protect intellectual property generated by researchers and academics through internal regulation. The case confirms that the only way to effectively acquire intellectual property generated by research or academic employees is by including appropriate provisions in individual employment contracts.

Background to the decision

Dr Gray was employed as a full time employee of the University of Western Australia to research technologies for use in the treatment of liver cancer. One of these involved the injection of microspheres into liver tissue to deliver anti-cancer therapies to tumour cells.

During his employment with the University, Dr Gray worked on a number of inventions which were ultimately acquired and further developed by Sirtex Medical Limited, a publicly listed company, of which Dr Gray was a director and significant shareholder.

The University initiated proceedings seeking a declaration that Dr Gray held his shares and options in Sirtex on trust for the University, that Sirtex held its patents and inventions on trust for the University, and that Dr Gray had breached his contract of employment.

The Court rejected all of the grounds on which the University asserted an interest in the intellectual property relating to the inventions or that Dr Gray had breached his contract.

The decision

The Court refused to accept the University’s submission that a term should be automatically implied into all contracts of employment with academic research staff who used University facilities, to the effect that intellectual property developed in the course of employment belonged to the University.

The Court accepted that it is an implied term of contracts of employment that inventions or discoveries made in the course of employment, doing that which an employee is engaged and instructed to do, is the property of the employer. Similarly, it was accepted that where a person is employed by a university to produce an invention, a term will be implied into the contract of employment that the invention belongs to the university. However, it was held that inventions which are not the product of work which the employee was actually engaged to perform will not be the property of an employer.

Here, the Court found that Dr Gray was employed to undertake and stimulate research, not to invent. Although the Court recognised that the research Dr Gray was employed to carry out meant there was a possibility that he would develop inventions capable of attracting patent protection, it did not follow that a term should be implied into his contract of employment that any rights in the invention belonged to the University.

Significantly, the Court considered that Dr Gray’s employment obligations differed from those of a person employed by a private commercial entity whose obligations include the advancement of the employer’s commercial purpose. Dr Gray, whose only obligation was to undertake research, had no equivalent obligation.

The University sought to run an alternative argument based on certain regulations it had passed in relation to the treatment and ownership of intellectual property, by which it purported, for example, to own inventions created by researchers. The Court rejected this argument, finding that the University’s power to enact Statutes and Regulations under the University of Western Australia Act extended only to controlling and managing its property, and did not extend to interfering with or alienating the property rights of its employees.

Regulations which purported to do so, by mandating an assignment of the employee’s rights or otherwise, were held to be invalid. The University could not by regulation - even where those regulations were incorporated by reference into the individual employment contract - unilaterally acquire that which it did not own.

Even assuming the Regulations enacted by the University had been valid, the Court also rejected the University’s argument that Dr Gray had breached them because of the University’s failure to implement a process by which he could have complied with them. For example, he could not have complied with the obligation to report commercially significant intellectual property because the University had failed to implement the process stipulated in the Regulations by which he was to do so.

Finally, the Court rejected the University’s argument that Dr Gray had breached fiduciary obligations owed to the University, including a duty to protect and preserve the University’s rights and not derive a secret benefit from his position, as this argument was premised on the University establishing that it had an interest in the inventions, which it had failed to do.

What does this decision mean?

The decision indicates that a university cannot rely on terms being automatically implied by law into employment contracts to claim title to an invention made by an academic employee, even where the invention is made during working hours, using university facilities and using university funding. Similarly, although the case looked specifically at legislative provisions relating to the powers of the University of Western Australia, it seems unlikely that a university is able to rely on by-laws, regulations or statutes enacted under empowering legislation to acquire intellectual property from employees.

If a university wishes to own intellectual property created by its academic and research staff, the decision suggests that express terms should be included in their individual contracts of employment assigning inventions made not only in the performance of employment duties but also in the course of using university funding and resources.

The University has indicated that it is considering an appeal.